Sectors in Australia Diverge

Our global Value Creators Report series analyzses the world’s top performing companies each year to build an understanding of what drives the performance of leading players across all industries.

Each year in the Australian Value Creators Report, we look at how our economy and market are performing relative to global peers, how different sectors are performing within Australia, and which companies are creating the most value.

Our Analysis of S&P ASX 200 Company Performance

This year we focus on divergence and disparity in Australia’s sectoral performance.

What makes some companies more successful in creating value than others? Which sectors have sustained strong performance? And which sectors have been a greater drag on Australia’s performance?

TSR differed significantly more by sector in Australia than in the international peer group, with lower returns in the Banking and Mining sectors. Regulation of banks, and a drop in commodity prices during the period lowered returns for companies in these two sectors, which together make up almost half of the ASX 200 by market capitalization.

Health care companies performed at the top end of the ASX 200, reaping high returns due to increased demand from aging and growing populations, as well as a falling Australian dollar that amplified international earnings.

Australia outpaced by global counterparts

In the five-year period to December 31, 2017, the ASX 200 delivered returns of 10.2%; on par with Europe (10.2%), but well behind the US (15.8%) and Japan (17.3%).

Overall returns were uninspiring, but the underperformance was predominantly driven by a few large sectors that experienced identifiable headwinds. The spread of TSRs across the five largest sectors in Australia was 13 percentage points, much wider than for international peers.

This is why Australia’s five-year returns are best explained through a sector lens.

Sectors underpin overall performance

To understand Australia’s performance, we split the ASX 200 into 13 sectors. A small number of sectors lowered overall ASX 200 performance ASX 200 five-year TSR was lowered by weak returns in five sectors: Banks, Consumer Staples, Mining/Materials, Telecommunication Services, and Energy. As Banks and Mining/Materials represent almost 50% of the ASX 200 by market capitalization, they have a strong effect on overall returns. Consumer Staples, Energy and Telecommunication Services are all smaller in size but delivered TSRs well below the ASX 200 TSR of 10.2%.

Health care continued to lead the other sectors, with a five-year TSR of 18.6% and a one-year TSR of 26.3%. The primary contributor to this outperformance was profit growth, with change in valuation multiple making up most of the remainder.

Top performing value creators

The threshold for top quartile five-year TSR from 2012 to 2017 in the ASX 200 was 23.2%, 8 percentage points above the median of 15.2%.

To illustrate how companies with different levels of maturity and from different industries have outperformed the market, at the end of this year’s report we profile six companies from the top quartile:
Domino’s Pizza, Fisher & Paykel Healthcare, Xero, Qantas, SEEK, and Fairfax Media.

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